Better days ahead for the junior sector.....PwC report, Reservoir mentioned about 2/3 of the way down the article as a Top 5 Junior company......
Better days await the junior sector, PwC reports
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2014-11-04
The worst of the current downturn may be over, PwC notes in its eighth annual Junior Mine report in late October. Looking at the top 100 TSXV-listed juniors by market capitalization, the 2014 report found that while the junior sector was continuing in survival mode that it was starting to see signs of recovery.
“The picture is brightening, somewhat: The market capitalization of the top 100 has increased by about 20% for the 12 months ended June 30, 2014, compared to a year earlier,” writes PwC global mining leader John Gravelle. The firms have a combined $7.9 billion market capitalization, up from $6.6 billion, a year ago.
The analysis shows since 2007, the top 100 accounted for more than half of the market capitalization for total mining companies, with the exception of 2008 where it tumbled to 29%. From 2007 to 2012, the total mining firms made up 57% of the total TSXV market capitalization. Last year, this percentage fell to 35% and slightly improved to 37% in 2014.
The average market capitalization among the top 100 has increased to $79 million, up from $65 million in 2013. While a notable improvement, it is still below the averages seen in 2011 and 2012.
Of the top 100 companies, 56 are in the exploration phase, 23 in development and 21 in production, largely in line with previous years, with a slight increase in producers and a drop in developers this year.
Similar to prior years, the majority of these entities have their head office in British Columbia, followed by Ontario. They prefer to work in Canada and the Americas, with gold remaining the commodity of choice.
Looking at the financials for the top 100, PwC highlights the companies spent less on their operations in 2014 than in 2013, but also raised less money for the year ended June. Equity financings totaled $685 million, down from $795 million in 2013. Both years were below the $1.6 billion raised in 2012.
Total cash position also fell 20% year-over-year to $968 million on the back of fewer financings, with producers seeing the biggest decline in their cash balance. However, debt financing grew by $90 million this year to $379 million, adding stress on the sector with interest costs and covenants.
Total revenue plunged 21% to $690 million from $872 million in 2013, which already saw a 25% decline from the $1.2 billion generated in 2012.
“Volatile commodity prices are to blame for a drop in production and revenues, which also led to an increase in write-downs across the sector,” PwC says.
Write-downs jumped 167% to $233 million, up from $87 million in 2013. But, two-thirds of the total write-downs this year came from two companies, while half of the firms had no write-downs, and a quarter of them had write-downs of less than $1 million.
Of note, operating costs fell 26% in 2014 due to both lower production costs and general and administrative (G&A) costs. G&A decreased for all miners, expect for those in exploration phase, which saw flat expenses year-over-year.
Overall, the net loss for 2014 grew 19% year-over-year to $652 million.
“While the industry is still in doldrums, we are also confident that the market will soon turn. Long-term demand for metals and minerals will continue as the world’s population keeps growing,” Gravelle notes.
He expects the recovery will start with the major mining firms. “Once they begin to make meaningful investments in the industry, the mid-tier companies will benefit. It’s a case of tides lifting all boats.”
Top five
The top five firms for the year ended June 30, 2014, include Lumina Copper, which First Quantum Minerals (TSX: FM; US-OTC: FQVLF) acquired in August, Fission Uranium (TSXV: FCU; US-OTC: FCUUF), Bear Creek Mining (TSXV:BCM), Gold Reserve (TSX: GRZ; US-OTC: GDRZF) and Reservoir Minerals (TSXV: RMC; US-OTC: RVRLF).
Since 2009, the top five on average account for 23% of the market capitalization of the top 100 mining firms. This year, they make up 21%, up 3% from last year.
Listings and de-listings
PwC notes the number of initial public offerings in the junior mining space fell for the year ended June. Only two firms debuted on the Venture this year, compared to 24 in 2013.
Graduations to the TSX fell slightly to six, compared to seven in 2013. In 2012, 27 junior mining firms upgraded to the TSX.
The number of firms delisted from the TSXV in 2014 was 49, up from 31 in 2013. Of the 49 companies, 28 were involved in a merger or amalgamation, 20 requested to delist, and one failed to pay its listing fee.
“This isn’t the story of a multitude of de-listings that some anticipated, but does show that some companies have failed to keep the lights on,” PwC reports. It expects a similar number of de-listings in 2015.
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